Homeowners are using their equity for improvements

American homeowners have finally recovered from the Great Recession and a recent study from Black Knight Data and Analytics shows that homeowners now have access to $5.5 trillion in available or ‘tappable’ equity that they can borrow against.

All of this extra borrowing power, coupled with a renewed sense of security in the housing market has created a surge in home improvement projects, says USA Today. As many as 80 percent of those taking out home equity lines of credit say that renovations were a prime consideration. This type of spending reached $152 billion in the year 2017 and experts forecast a growth of 4.9 percent in 2018.

Changes in the housing market related to labor shortages and material costs have meant relatively fewer new homes are being built than in years past and this creates what is known as an aging housing stock. In this environment, buyers are much more interested in how an older home has been updated to fit with modern trends. Remodeling magazine’s analysis shows that replacement entry doors, deck additions, and bathrooms are some of the best improvements to make in terms of getting that value back with a home sale.

Although some homeowners choose to use their equity to pay for their children’s education or other debts, their actions are signaling that they feel as though the rising housing market will reward their investments into making their homes even more valuable than they are now.

It should be noted that recent changes to tax laws may make home equity lines of credit a less desirable way to obtain access to equity than it has been in the past. This is because the interest paid on these loans is no longer deductible on federal income taxes. In some cases, it might make sense to look into a cash-out refinance as an alternative.